That's what we called it in school, just that one word, "Macro."  It meant macro-economics and was famously difficult, especially so because economics would presumptively be "naturally" easier than engineering.

I don't think that any more!

Economics uses nonlinear devices (people) and has a seemingly unbounded system running just once through history, so like history or global weather, prognostications are based upon subscale models, and trying it again isn't possible: you only live through history once.

This allows people to make statements like "taxes kill jobs" and with some simple reasoning, you can see why. But the reasoning is OVER simplified and that's always dangerous to an analysis.  Let's have a quick review. Business compares ROI for a $ invested vs placed in the bank.  The bank's nominally surer, so the investment has to pay more.  If my calculation imagines 50% cost of manufacturing, 20% shipping, 10% warranty and 20% taxes, I probably won't build the factory just to break even.  With a 10% tax break it's looking pretty good though and in-between is, well, in-between.  It's easy to see that changes in the factors will influence the decision. The partial derivative of factories built / d(tax rate) is a clear trigger to investment and unarguable.

But the world's a big system, and these things feed into each other.  What if the decision IS literally marginal? Suppose 15% taxes and 5% long term savings yield. Then the investment's a wash, right?  Well remember, long term, the return on savings is created by those business investments.  Each time you decide not to build a factory, there ends up being more money in savings accounts looking for return, and thus lower rates of return and when the savings bond yields 4%, I'll pick the factory.  So there's a closed loop process, where one thing affects another, indirectly and maybe slowly, but unambiguously and powerfully, I say.  More proof? Chinese savings dollars continue to prop up t-bills.  That's money looking for an investment.

So that fact directly contradicts the premise that taxes kill jobs, though only over the long term. A better mantra would be "sudden tax give-aways will stimulate spikes in investment."  The whole short time horizon thing explains why it would be appealing to people, but maybe not good policy.  I think I've made an argument that over the long term, the first order effects of taxation are nil.  A second point comes from the consequences of the tax.

Taxes get spent. The government redistributes the money (I know that's a bad word, connoting robbery, but it's not fair to dodge it here.) in ways that get it into the system: people who need to buy groceries, teachers on the state payroll, and defense contractors who make bombers.  (That the bomber is a product that is itself a tax is a tertiary issue* My point here is that it's not just poor people who benefit from the flow of tax dollars, but also well heeled aerospace engineers.) So taxes create jobs. They may directly fund them (teachers) or create economic pull through spending  that creates jobs. This route is no more indirect than the analysis of taxes removing investment from the private sector.

I have peeled away one layer of the onion. Doubtless my "analysis" is sophomoric. it's frustrating though, that our mainline political discourse in the country never even gets this deep!   It's as though, discussing sailing, somebody says "well, you can't sail into the wind!" and wins the argument, because our patience doesn't allow for a discussion of tacking and how you can work to windward that way.  How can the system use the cogs of sound bites to make an engine that considers more complex thoughts, draws more intelligent conclusions? Returning to the first argument, remember that IT yields immediate observable results.    



  1. *The titanium in my bike is creating value: happiness. Ditto a pencil or a potato. The titanium in a bomber is used only to destroy value. When it blows up somebody's bridge, their labor is lost. There's a term I forget that economists use to describe that ugly sweater from aunt Wanda that you stick in the back of the closet forever: the knitting, wool, shipping costs are all lost, like a sunken freighter or an island of misfit toys. Christmas is a tax on the economy. (I heard a show where economists were crying the blues at Christmas, lamenting all the lost work.) Now I know there are times you need the military but it's equally obvious that if we didn't, we could make bridges instead, and somebody else's bridges would stand, so those are taxes on an otherwise ideal economy

  2. Here's a quick note on tax policy, and some reasoning about its consequences.